Over the past decade, the Build to Rent (BTR) concept has been reshaping real estate in the United Kingdom, offering an alternative to traditional housing options more in step with the needs of modern tenants.
Unlike conventional property developments aimed at individual ownership, BTR focuses on creating purpose-built communities, with a model that prioritises tenant amenities, professional management, and community building. These three factors set it apart from traditional approaches.
In the UK, BTR appeals to a broad demographic, from young professionals seeking the flexibility and convenience expected in a post-COVID world, to older generations looking for community-oriented living without the burdens of home ownership.
The rise of BTR reflects socio-economic trends, including urbanisation, the evolving nature of careers, and changing family structures. Each of these influence housing needs. With this unique approach to housing, BTR is not only responding to the demand for high-quality, well-managed stock – it is also playing a crucial role in addressing the UK's housing shortage.
The evolution of Build to Rent
Although the concept of Build to Rent (BTR) in the UK is relatively new, it has quickly become a significant aspect of the housing market. BTR typically draws on practices seen in the American real estate market, where such developments have been common for many years. However, the UK model has its own unique origins.
When did Build to Rent start in the UK?
The BTR sector in the UK traces its roots back to around 2012, following the Montague Review, which highlighted the potential for institutional investment in residential properties built specifically for renting.
This was seen as a way to professionalise the private rented sector and provide commercialised, high-quality, and well-managed housing options for renters. The first notable BTR project in the UK was the conversion of the athletes' village from the 2012 London Olympics into what is now known as East Village, offering high-quality rented accommodation managed by a single entity.
Government support and growth
Recognising the potential of BTR to contribute to solving the housing crisis, the UK government has actively supported the sector through various initiatives.
One significant support mechanism has been the Home Building Fund, which provides financial backing for new housing projects including BTR developments. This government endorsement has acted as a catalyst for the sector's growth, leading to a surge in the number of BTR projects across the country.
Comparison with the U.S. Market
But while the BTR market in the UK has drawn inspiration from the U.S., there are key differences. In America, such developments have long been a mainstay in the housing market, however, across the pond it is known as multifamily housing.
Multifamily housing developments are typically large-scale, and they are owned and operated by major corporations, often publicly traded real estate investment trusts (REITs).
By contrast, the UK's BTR sector is still maturing, with a mixture of domestic and international investors focusing on urban centers like London and Birmingham, where the demand for rental properties is high but the stock is relatively low.
What characterises a Build to Rent property?
Build to Rent (BTR) properties are different to the traditional approach for a few reasons. As we’ve mentioned, the focus on tenant experience, community amenities, and professional management are just three of the indicators that set BTR apart.
Purpose-built design: BTR properties are designed specifically for the rental market. Unlike buy-to-let properties that are often converted for rental use, BTR developments are planned from the ground up with the needs of renters in mind. This can include everything from the layout of the apartments to the inclusion of community spaces, and even something as simple as high-speed internet throughout.
Community Focus: One of BTR’s major hallmarks is the emphasis on community. BTR developments actively promote this idea, and it is often cited as an attractive proposition for renters. Whether through thoughtful design, communal spaces (like lounges, gyms and gardens), these things can add value and encourage a sense of community among residents.
Professional Management: BTR properties are typically managed by professional property management companies that handle everything from leasing and maintenance to tenant relations and community events. This professional management ensures a higher standard of service, with dedicated staff available to address tenant issues promptly. There is also a focus on tenant safety, especially in light of the Grenfell tragedy and reforms to the Fire Safety Order.
Build to Rent compared with other rental models
Build to Rent vs. Buy to Let
The traditional buy to let (BTL) model revolves around investing in existing properties to rent out, with either minimal or wide scale renovations. These properties typically don’t offer the same level of amenities or community that BTR developments espouse. BTL landlords are usually individuals or small-scale investors, so management, compliance and safety standards can be found lacking in some cases, which the UK government has pledged to crack down on.
Build to Rent vs. Rent to Rent
Rent to rent involves leasing a property and then subletting it to others. While this can be profitable, it often does not involve significant investment in the property, leading to a lack of long-term improvements and virtually no focus on community development. As an investment vehicle, BTR is much more promising for long-term value.
The Build to Rent Market in the UK
The Build to Rent (BTR) sector has rapidly expanded across the UK, becoming a key part of the country's wider housing strategy.
According to an analysis by the Financial Times, England may need up to half a million new homes annually to match the rising population demands. This estimate far exceeds the housing targets set by the main political parties.
Things like an unexpected population increase driven by record migration levels, alongside domestic demand, plus a longstanding shortage of housing and aging housing stock, all contribute to the shortfall.
Based on projections from 2023 to 2036, the analysis suggests that at least 421,000 new homes are needed each year, with numbers potentially rising to over half a million if current migration trends continue.
Current BTR market trends
The latest data suggests that the BTR sector in the UK comprises over 250,000 homes either completed, under construction, or in the planning stages.
This figure reflects a robust growth trajectory, with a notable concentration in urban areas where demand for rental housing is highest. London leads in terms of total units, but regions such as Manchester, Birmingham, and Liverpool are also seeing substantial BTR developments.
Because of the demand and the opportunity, investment in BTR has reached record levels in recent years, with billions of pounds flowing into the sector each year. This investment comes from a variety of sources drawn by the reasonably attractive yields and relative stability that BTR properties can potentially offer.
In terms of distribution, while BTR developments are widespread across the UK, certain areas have emerged as hotspots. London, as is always the case, has the lion’s share of BTR projects, but other cities are not far behind:
- Manchester: Known for its youthful demographic and vibrant cultural scene, Manchester has seen a noticeable surge in BTR developments. Its growing job market and the increasing number of young professionals seeking flexible, high-quality rental options is attracting investors.
- Birmingham: With major regeneration projects underway, Birmingham's market is seen to be thriving. The city’s strategic central location and ongoing infrastructure improvements make it an attractive option for developers and tenants alike.
- Liverpool: Liverpool's revitalisation efforts over the past decade have made it another fruitful area in the BTR sector. It has an affordable cost of living compared to other major UK cities, which makes it an appealing choice, too.
Technological Innovations in Build to Rent
Due to its more recent rise in prominence, the Build to Rent (BTR) sector has been in a position to embrace technological innovations that not only enhance operational efficiency and tenant satisfaction, but also ensure compliance with evolving safety regulations. These technologies have been fundamental in transforming Build to Rent property management more broadly.
Tech-enabled property management
Modern property compliance and operations software gives property managers the tools they need to inspect and maintain BTR properties in the best possible way. This is important because it ensures they remain safe and compliant, especially in light of the UK's updated fire safety regulations. Platforms like Property Inspect are used in BTR to facilitate regular safety inspections and maintenance checks, streamline reporting to other stakeholders, and ensure all safety measures are documented and accessible, reducing risks and enhancing tenant safety.
IoT and Smart Utilities Control
The integration of Internet of Things (IoT) technology in BTR developments offers another significant advancement, especially when it comes to utilities and energy consumption, which is a hot topic in the UK today with the cost of living crisis. Whether it’s smart thermostats, lighting systems, or water heaters, being embedded into some Building Automation System through the use of IoT sensors not only gives tenants and property managers control over the living environment and communal spaces, but it also contribute to the building's overall energy efficiency, in line with the growing tenant demand for greener, sustainable living.
Virtual Tours and Augmented Reality
The use of virtual property tours and augmented reality (AR) applications is becoming increasingly popular, especially among digital-native renters who value the convenience of exploring properties online. Many property searches are conducted digitally through property portals, but virtual tours and AR give developers a more powerful, immersive way to market their properties.
Community-focused apps
Apps designed for community engagement within BTR are becoming popular of late. These platforms enable residents to connect with each other and access shared spaces or amenities. Apps like this can be essential tools that contribute to the overall attractiveness and competitiveness of BTR developments.
Looking to the future of BTR
While the future of housing in the UK hinges on a number of things, it is abundantly clear that the Build to Rent sector is reshaping the UK's housing market, offering something completely different – a modern lifestyle that aligns with modern needs.
BTR has the potential to go beyond simply addressing the housing shortage. It has a chance to completely redefine residential living and standard. Then, with new technologies thrown into the mix, the sector is in a prime place for further investment and development.
Looking forward, the BTR sector is poised for decent growth, which will not only meet immediate housing demands but also foster communities in our towns and cities. Now, as BTR evolves to meet changing market trends and tenant needs, it remains a promising solution in urban residential development, setting a standard for future housing models powered by innovative technologies and people-first approaches.
